Since 2014, when Narendra Modi assumed office for the first time as the Prime Minister of India, he has been keen on pushing India’s manufacturing sector through the marquee programme ‘Make in India’. He reinforced his focus with another – ‘Atmanirbhar Bharat’ or ‘Self-Reliant India’ in May 2020.
The government’s capital expenditure in GDP has doubled from 1.6% in 2015 to 3.4% in 2024. It is the highest capex since 2004-05. The government has made substantial offerings totalling almost $28 billion in subsidies for manufacturers in 14 manufacturing industries in the country.
However, as the government under the leadership of Narendra Modi in the third term takes office, there is a debate doing rounds whether India should continue pushing manufacturing capabilities or give thrust on its capabilities in services, a sector India has dominated for over a decade.
Call for Services
Experts calling for a renewed focus on the services sector feel that there are a few persistent factors that render services more feasible than manufacturing. Firstly, India’s share in global manufacturing stands staggeringly low at just 2.87% compared to its arch-rival China which contributes 31.63% of the global manufacturing output.
Secondly, India has followed protectionism measures, opting out of regional cooperations and agreements – Asia’s Regional Comprehensive Economic Partnership (RCEP), for example – that would help increase the country’s share in the global manufacturing supply chains.
Thirdly, India makes more value addition through services such as research and development, design, marketing, packaging and branding rather than manufacturing goods.
Why Manufacturing
Even though India has a low share in global manufacturing output, India is the 5th largest manufacturer in the world. As per the report of UNCTAD, at least 84 countries – both developed and developing, accounting for about 90% of global GDP — adopt formal industrial development strategies. India is not out of the league.
Undoubtedly, India enjoys a healthy market share in the export of telecommunication, computer, and information technology services which are growing faster than the export of goods and the country is placed after only Ireland.
However, this is just a sub-segment of services and is less than a third of global services ($7.1 trillion), which itself was only 23% of total trade in 2022 and India is not very significant in other services sub-sectors and is now the seventh-largest globally.
On the other hand, India’s total exports stood at $776 billion, of which $450 billion came from manufactured goods as per 2022-23 export data. According to estimates by the Federation of Indian Export Organizations (FIEO), India’s exports are expected to increase from $770 billion in 2023-24 to $900 billion in 2024-25 and $1 trillion by 2030 as production investments and domestic capacity expand, signalling an equally growing share of manufactured goods from India.
The government has provided thrust on sunrise sectors such as semiconductors, electronics manufacturing, electric vehicles ecosystem, renewable energy and defence. The government has announced various schemes including the Production Linked Incentive Scheme (PLI) for Large Scale Electronics Manufacturing, the Production Linked Incentive Scheme (PLI) for IT Hardware, the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) and Modified Electronics Manufacturing Clusters Scheme (EMC 2.0).
Job Scenario
As per reports, almost 11.2 crores have been created during Modi’s years. By 2030, one out of every five working-age people in the world will be Indian, and India needs to create 115 million jobs by 2030 at an average of16.5 million jobs per year, up from 12.4 million per year for the last decade to both absorb underutilised working and incoming labour force.
As per reports, service made up a staggering 55 per cent of India’s GDP while manufacturing stood at 14 per cent in 2023. However, ILO 2024 labour report data suggest that the entire ICT, financial and business service sector employs about 2.3 crore jobs while 6.3 crore are in manufacturing.
India’s overall labour force participation rate is still only 58 per cent versus 68 per cent for the Asia-Pacific emerging markets average. India has the largest working-age population in the world but ranks 19 for manufacturing exports, with only 1.6 per cent of global market share. Given the demographic dividend that we have and the growth potential of manufacturing, the sector outpaces services in terms of job creation.
India has undoubtedly enjoyed a flourishing run in the services sector. Still, manufacturing holds the key to ‘Viksit Bhart 2047’, the government’s latest clamour call and India’s centennial goal to emerge as a fully developed economy by 2047 with higher employment and export capabilities.
